Chapter 5: CONSUMERS & INCENTIVES

Buyers Problem

1. What do you like?

2. How much does it cost?

3. How much money do you have?

Budget set

is the set of all possible bundles of goods and services that a consumer can purchase with his income

Budget constraint

represents the goods or activities that a consumer can choose that exactly exhausts the entire budget.

Consumer Surplus

The difference between what you are willing to pay and what you have to pay (the market price)

Elasticity

A measure of how sensitive one variable is to changes in another